Thomas v Waikato Steel Fabricators (2015) Limited
[2019] NZHC 2629
•15 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-920
[2019] NZHC 2629
BETWEEN DAVID THOMAS
Applicant
AND
WAIKATO STEEL FABRICATORS (2015) LIMITED
First Respondent (discontinued)
AND
REINFORCING STEEL AND MESH LIMITED
Second Respondent
Hearing: 30 September 2019 Appearances:
P R Allan for Applicant
N T Gray for Second Respondent
Judgment:
15 October 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 15 October 2019 at 4.00pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 15 October 2019
THOMAS v REINFORCING STEEL AND MESH LIMITED [2019] NZHC 2629 [15 October 2019]
[1] The applicant as liquidator of Bishop Industries (Auckland) Ltd (in liquidation) (“Bishop”) seeks orders requiring Reinforcing Steel and Mesh Ltd (“RSM”) to pay to Bishop three amounts received by RSM in relation to a development in Auckland.
[2]The three amounts in issue are:
(a)$23,306.30 paid by Bishop to RSM on 13 January 2017 (“January transaction”);
(b)$10,781.14 paid by Ganellen Construction Ltd (“Ganellen”) to RSM allegedly on behalf of Bishop on 13 February 2017 (“February transaction”);
(c)$25,425.12 paid by Ganellen to RSM allegedly on behalf of Bishop on 31 March 2017 (“March transaction”)
[3] Bishop was placed into liquidation on 17 March 2017 and so the March transaction occurred after liquidation. The liquidator challenges the January and February transactions under s 292 of the Companies Act 1993 (“the Act”). Given the March transaction was after liquidation, the liquidator seeks recovery of that payment on the basis of money had and received.
[4]RSM opposes the application on the basis that:
(a)in respect of the January transaction, while it accepts this payment qualifies as an insolvent transaction, it says it has a defence under s 296(3) of the Act; and
(b)in respect of the February and March transactions, it says that these were payments by Ganellen to RSM in relation to separate contracts made between them and as such the payments had nothing to do with Bishop.
Context
[5] The background is not in dispute. Bishop carried on business as a construction company specifically constructing concrete panels for Auckland apartment buildings.
[6] In early April 2016, Bishop entered into a contract with Ganellen, under which Bishop was to undertake the design, supply and installation of precast concrete panels, form work and carpentry at Alexandra Park. Ganellen had entered a head contract with the Auckland Trotting Club Inc to construct a large-scale apartment complex and retail development at Alexandra Park (“the project”).
[7] In November 2016, Bishop contracted with RSM for RSM to supply reinforcing steel and mesh for part of the project. It is common ground that a contract for the supply of steel was arrived at. The exact nature of the contractual relationship is disputed. The liquidator says that RSM was a sub-contractor to Bishop in relation to the project. RSM says it was not a sub-contractor to the project, rather its contractual relationship was in the nature of an ad hoc supplier of steel to Bishop.
[8] There is some material supporting the liquidator’s position that RSM was a sub-contractor. In an email of 15 November 2016 from RSM to Bishop, RSM said:
Alexandra Park building – whilst this requires an further checks, for timeliness we have measured 14.1 tonne for the 27 panels provided. Our price based on these plans is $27,784. This is a bit higher than usual for panels but reflects the required steel types per drawings including the volume of reid bar in the panels (incl prep at one end). Our ref: [E16110941]
I can follow with a formal quote if you require, we would normally provide a formalised quotation response which includes any special conditions and our T’s & C’s (which are on our website This e-mail has been sent as discussed to provide a quick response.
Prices above are GST exclusive and excluding any accessories.
[9] This email is suggestive of RSM being a sub-contractor in respect of the project, as it shows RSM pricing for 27 panels required for the project as per the drawings provided, rather than of simply supplying steel to Bishop. However, there is no evidence that a formalised quote or sub-contractor agreement was entered into.
[10] Ultimately, neither counsel suggested the exact nature of the contractual relationship was significant.
[11] RSM issued the following invoices to Bishop between 21 November 2016 and 3 February 2017:
Date of Invoice Amount of Invoice Subject of Invoice Due date for payment 21 November 2016 $1,842.70 Alexandra Park TreePits
Supply Reinforcing Steel Per d/s DAL
As Quoted
21 December 2016 29 November 2016 $21,463.60 Alexandra Park Shear Wall Panels Supply Reinforcing
Steel Per d/s/ DAG As Quoted
20 December 2016 15 December 2016 $20,042.20 Alexandra Park Building B
Basement Panels Supply Reinforcing Steel Per d/s DCT
As Quoted
20 January 2017 15 December 2016 $3,076.94 Alexandra Park Stage B
Supply Reinforcing Steel & Accessories Supply of 30 x 60mm Corrugated Tubes Supply of 30 x 70mm corrugated tubes
Delivery @ each
20 January 2017 23 January 2017 $6,716.35 Alexandra Park
-Building B
Supply Reinforcing Steel to Detail Lift panels (3 of) Per d/s DGO Payment Claim
As Quoted
20 February 2017 3 February 2017 $33,624.97 Alexandra Park
- Building B Supply Reinforcing
Steel to Detail Panels U1 & U2 Per d/s DLO, W1 & W2 per d/s DLP, K01 & K03 Per d/s SLL, BP13, BP15, BP16 &
BP17 Per d/s DLM
20 March 2017 TOTAL $86,766.76 [12] The January transaction of $23,306.30 cleared the November invoices. The due dates given above are those alleged by the liquidator.
[13] No further payments were made directly from Bishop to RSM prior to Bishop’s liquidation on 17 March 2017.
The Ganellen payments
[14] The February and March transactions challenged by the liquidator do not correspond to any of the unpaid invoices as set out above.
[15] RSM says that the contemporary record shows that it advised Bishop that RSM would no longer supply Bishop because of its failure to make promised payments. RSM says effectively at the same time as it advised Bishop that it would no longer supply, it was contacted directly by Ganellen which requested that RSM supply further reinforcing steel directly to Ganellen. Thus, RSM says that the payments it received were nothing to do with Bishop.
[16] The evidence shows that from early January 2017, RSM and Bishop were liaising over the detailed drawings and specifications for panels required for the project. The emails refer to panels for the project by way of reference numbers which presumably equate to references on the plans and specifications.
[17]On 25 January 2017, RSM emailed Bishop including the following:
My plan is to work through the following in sequence …
1. Alexandra – The following panels …. ( From the top of your Schedule rec’d Monday ) … J01,J02,K02,BP18 to BP22,BP8 to BP10
-
2. Skhy- Panels LPB 5 to 19
3. Nugent – Lev. 4 Spandrels
…
[18] Bishop replied later that morning in an email with the subject line “Re: Alexandra Park Panels REO ORDERING”:
Thanks for your email. Please do your best to make them as soon as you can please. We are behind the schedule and clients keep ringing us. Thanks.
[19] The liquidator says that this shows that the panels for the project were ordered by Bishop.
[20] On 3 February 2017, there was a further email from RSM to Bishop that referred to a number of panels under the heading “Alexandra”, including J01, J02, K02, BP18 to BP22, BP8 to BP10 recording them as “ready for production” and in relation to BP14 there was the note:
Detailed await feedback on HR25 alternative … to finalise for workshop.
[21] 3 February 2017 was a Friday with the following Monday being Waitangi Day (a public holiday).
[22]On 8 February 2017, RSM emailed Bishop stating:
Last week we were promised payment of the December invoices on 7 February 2017. I have today been advised that no payment has been received. We will therefore be putting all supply on hold until we have had this situation resolved. [emphasis added]
[23] At around the same time, although the exact date is not given, Mr Parke who is RSM’s business manager, says that he was contacted by Ganellen about Ganellen making orders directly with RSM in connection with the project. Mr Parke says that a Ganellen representative told him that:
… Bishop was no longer on site and Ganellen was taking over ordering the supply of panel steel. He did not explain why, and I didn’t ask. … I said I would discuss this with Peter Kitson [of RSM] and come back to Ganellen with a list of the panels supplied to Bishop to date that remain unpaid and other panels that had been listed but not yet ordered.
[24] Then on Friday 10 February 2017, Mr Kitson sent an email to Ganellen referring to the telephone conversation that Ganellen had with Mr Parke. In the email, Mr Kitson provided a list of panels that had been provided to Bishop to date but for
which RSM had not been paid. The email said:
Further to that we have panel reo detailed ready and waiting for production that are on hold, they are:
·BP08 to BP10 (RSM d/s DNE)
·J01, J02 & K02 (RSM d/s DNB)
·BP18 to BP22 (RSM d/s DNC)
·BP14 (RSM d/s DND)
[25] It will be seen that the reference to panels J01, J02 and K02 and BP08 to BP10, then BP18 to BP22 are those referred to in the emails between RSM and Bishop of 25 January 2017 as being panels that Bishop wished to have constructed (“Please do your best to make them as soon as you can please”). These panels had not been completed by the time RSM sent Bishop the 8 February 2017 email saying that supply would stop given the non-payment of the December 2016 invoices on 7 February 2017 as apparently promised.
[26] Accordingly, by 10 February 2017, RSM had been advised that Bishop was no longer on site. The email from RSM to Ganellen that I have referred to at [24] above was sent on 10 February 2017 at 9.24am. By 10.50am, the Senior Site Foreman of Ganellen sent the following email to Mr Kitson of RSM:
Thanks Peter,
Can you please manufacture and delivery [sic] the below reinforcing to panels;
- SW-J01
- SW-J02
- SW-KO2
Delivery address is; Gate D
223 Green lane West EpsomAuckland 1051
If you can issue us with an invoice today we can ensure payment is proceed [sic] for you by Wednesday 15th February.
Any questions please give me a call to discuss further.
[27] Mr Kitson of RSM replied later that day referring to the panels specified in the Senior Site Foreman’s email saying that they would be delivered first and were “into production today”.
[28] Mr Kitson’s reply email went on to refer to the supply of a range of other panels for the project and concluded with the following:
I have received the accounts forms and will have them completed and back today. I have raised an invoice for the below three panels as requested and happy to discuss the others next week to look at what terms work.
Please advise if the above is not what you believed we discussed or if any changes are requested. If not we’ll be in touch next week re delivery.
[29] The reference to “below three panels” are to the panels specified in the Senior Site Foreman’s email. He replied:
Thanks Peter,
Its great to have things moving forward again as they should.
If you can advise delivery dates early next week, then we will be able to advise the reo fixers of time frames to commence works on site.
Greatly appreciate your help.
[30] The invoice that Mr Kitson refers to raising is dated 10 February 2017, is addressed to Ganellen Construction Ltd and is for the project with the narration:
To supply reinforcing steel to detail: Reinforcing to Panels SW-J01, SW-J02 and SW-KO2.
[31] There were other references in the narration. That invoice was paid within a few days. It is the payment made by Ganellen of this invoice which is the February transaction the liquidator says is a voidable transaction by Bishop.
[32] The second invoice paid by Ganellen was raised by RSM on 16 February 2017 and is for a range of panels also referred to in the email exchange between RSM and Bishop as being panels that Bishop had asked to be manufactured as soon as possible, that is panels with a BP reference referred to in the RSM email of 25 January 2017 referred to at [17] above. Again, in respect of this invoice RSM raised the invoice directly to Ganellen. This is the invoice that was paid after liquidation.
[33] RSM says that the email exchange shows that Bishop was off site, that it was approached by Ganellen to supply direct, that it did so, invoiced Ganellen and was paid direct. Thus, RSM says the two payments received from Ganellen are nothing to do with RSM and cannot be subject to s 292 of the Act. On this basis, RSM says the payments it received from Ganellen were not transactions by Bishop as defined in s 292(3) of the Act.
[34] The liquidator says that the payments were made at the direction of, or with the consent of, Bishop and therefore capable of being a transaction under s 292.1 The liquidator relies in part on an affidavit sworn by Mr Blunden, the general manager of Ganellen, in separate proceedings which was referred to by the liquidator without objection from RSM. Mr Blunden in that affidavit said:
On 16 February 2017, the managing director of Ganellen, Nick Kodos, met with Mr Bishop. At that meeting, it was agreed, amongst other things, that:
(a)both parties consented to Ganellen engaging other subcontractors to review, alter and fabricate the precast panels, due to Bishop Industries being unable to meet its contractual obligations;
(b)Bishop Industries would provide the CAD shop drawings to:
(i)aid with Ganellen’s engineer’s reviewing process; and
(ii)be used by the other subcontractors to review, alter and fabricate precast panels;
(c)Ganellen would assist Bishop Industries by making urgent payments for outstanding debts owed by Bishop Industries to its creditors.
[35] The liquidator relied on (c) as showing that Ganellen had agreed that it would assist Bishop by making payments for outstanding debts owed by Bishop to its creditors.
[36] Further, the liquidators in particular rely on the fact that when Ganellen issued its final payment schedule to Bishop, Ganellen claimed a credit in respect of both payments made to RSM.
1 For example, Robt. James Holdings Ltd v McCullagh [2018] NZCA 358 at [122] – [123].
Discussion
[37] Mr Gray, counsel for RSM, says that RSM was not a creditor of Bishop in respect of the two payments it received from Ganellen. Ganellen did not, in paying RSM, reduce an indebtedness it had to Bishop by making payments at the direction of, or with the consent of, Bishop.
[38] Mr Gray submits that in respect of the February and March transactions, Ganellen was the debtor and RSM the creditor in respect of standalone orders.
[39] Mr Gray emphasises that the liquidator has the onus of proving that Bishop, as debtor of RSM, directed or consented to Ganellen paying money owed by Bishop directly to RSM. Mr Gray submitted that not only has the liquidator not proved that, but the evidence establishes on the balance of probabilities that the contractual relationship was directly between Ganellen and RSM.
[40] RSM says that how Ganellen has treated the amounts it paid to RSM in its accounting to Bishop, is nothing to do with RSM.
[41] In my opinion, the evidence squarely supports RSM’s case that it entered into a new contractual arrangement directly with Ganellen on 10 February 2017. Whatever the nature of the contract between Bishop and RSM and assuming that Bishop had placed orders for the panels referred to at [17] and [18] above, the commercial reality is that RSM notified Bishop that it would no longer supply Bishop because of Bishop’s failure to make the promised payment on 7 February 2017. The evidence is that after the 8 February 2017 “stop work” email, there was no further communication between Bishop and RSM.
[42] In my view, the email from the Senior Site Foreman of 10 February 2017 referred to at [26] above, was a standalone order by Ganellen for the panels there specified. RSM accepted the order and raised an invoice direct to Ganellen and was paid.
[43] That Bishop may already have ordered those panels, in my view, is beside the point. That the emails sent by Bishop to RSM at the end of January 2017 were a request for RSM to manufacture the panels as soon as possible, even assuming the order was accepted, was overtaken by the stop work/cease supply email of 8 February 2017.
[44] At worst, for RSM, it had a contractual commitment to supply both Bishop and Ganellen. It supplied Ganellen and was paid by Ganellen. It did not supply Bishop.
[45]The supply under the invoice of 16 February 2017 is in the same category.
[46] I find that the liquidator has not discharged the onus of showing that the February and March transactions represented a payment that Ganellen owed to Bishop which was paid to RSM at the direction of, or with the consent of, Bishop. Again, the February and March transactions were specific invoices raised between RSM and Ganellen and they were not payments by Ganellen of pre-existing unpaid invoices owed by Bishop to RSM.
[47] Having made that finding, it follows that the February and March transactions cannot be voidable transactions under s 292 of the Act as they were not payments by Bishop or payments made by a debtor of Bishop of money owed to Bishop with its consent or at its direction.
[48] I have not overlooked Ms Allan’s submission that Mr Blunden confirmed, at the meeting referred to in his affidavit set out in part at [34] above, that it was agreed that Ganellen would assist Bishop by making urgent payments for outstanding debts owed by Bishop by its creditors. However, as Mr Gray submitted, Mr Blunden’s evidence referred to Ganellen making urgent payments for outstanding debts that were owed by Bishop. The payments made by Ganellen here did not relate to outstanding debts owed by Bishop set out in [11] above.
The January transaction – RSM’s defence under s 296 of the Act
[49] The January transaction as noted, stands separate from the payments made by Ganellen as it was a direct payment by Bishop. Given RSM accepts the payment
qualifies as an insolvent transaction, the issue is whether RSM can rely on the defence available under s 296(3) of the Act.
[50] RSM must demonstrate that it acted in good faith, that is, that it was unaware of Bishop’s financial difficulty. RSM must also establish that it did not have reasonable grounds to suspect that Bishop was, or would become, insolvent and that it gave value in the reasonably held belief that the payment was valid and would not be set aside.
[51]Counsel for the liquidator submitted that:
… whilst RSM may have given value, it cannot rely on s 296(3)(c) because it did not act in good faith and it had reasonable grounds to suspect [Bishop] was insolvent or would become insolvent.
[52] Accordingly, from the liquidator’s point of view, the focus is on good faith and reasonable grounds to suspect insolvency.
Good faith
[53] The January transaction related to invoices raised on 21 and 29 November 2016. On the liquidator’s case, they were due for payment on 20 December 2016. RSM suggests that industry practice was that invoices were paid on the 25th of the month following rather than on the 20th, but I note that its own invoices require payment on the 20th of the month following.
[54] The November 2016 invoices were paid on 13 January 2017, that is the first working week back after the Christmas/New Year break. As at 13 January 2017 only the November invoices had fallen due. That there was a delay in the invoices being paid over the Christmas/New Year period was not unusual.
[55] Ms Allan in her submissions said RSM had awareness of Bishop’s financial difficulty because Bishop had defaulted on all of RSM payment claims. However, by the time of the January transaction, there had been no prior defaults and in the context of the Christmas/New Year break I do not consider that the delay in payment would,
without more, meant that RSM should have been aware that Bishop was in financial difficulty.
[56] The payment on 13 January 2017 pre-dates the 8 February 2017 “cease supply” email. It also pre-dates the discussions referred to in that email about the December payments being late which resulted in the promise that the December invoices would be paid on 7 February 2017.
[57] Counsel for the liquidator accepts that an awareness of financial difficulty is not necessarily enough to establish a lack of good faith.2 However, she says the following factors are relevant.
[58] The submission is that the January transaction only satisfied half of what was owed at the time it was made. In a sense that is right, however, by the time the January transaction was made, the December 2016 invoices had not fallen due and so the fact that payments that were not due were not paid would not of itself have raised any concerns. The other matters relied on by counsel for the liquidator relate to events after the 8 February 2017 email and thus cannot influence what RSM was aware of when the January transaction was received.
[59] Accordingly, given the January transaction was not significantly late and given it was paid at a time of year when debtors are generally slow to pay, I do not consider that the fact of late payment of itself in this case meant that RSM was not acting in good faith.
Reasonable grounds to suspect insolvency
[60] Would a reasonable person in RSM’s position have suspected or had reasonable grounds to suspect that Bishop would become insolvent at the time it received the January transaction?
2 Madsen-Ries v Rapid Construction Ltd [2013] NZCA 489, [2015] NZAR 1385 at [11].
[61] Both counsel relied on the following passage from Meltzer v Allied Concrete Ltd:3
[13] The Courts do not look for any single factor, but rather judge the matter on the basis of the contemporary knowledge of the recipient, including potentially countervailing factors, which tended to dispel suspicion at that time. While cash-flow problems can raise a suspicion of insolvency, they must be viewed in context and apparent cash-flow problems may be explained simply by a habit of delay in payment. Thus, a temporary lack of liquidity, is generally insufficient for a conclusion of insolvency. When approaching the question of suspicion, it is important to apply commercial reality, derived from the particular industry, to the facts of the case.
[62] Again, the only factor that could be relied on to say that there were reasonable grounds for suspecting Bishop was insolvent was the fact that the January transaction was something like 15 working days late, assuming it was due on 20 December 2016.
[63] Again, given the time of year, I do not consider the fact that invoices due (at the earliest) on 20 December 2016 were paid on 13 January 2017 would have led a reasonable person in RSM’s position to suspect that Bishop was, or would become, insolvent.
[64] Accordingly, I find that RSM has succeeded in establishing a defence under s 296(3) of the Act. Again, it was not in issue that RSM had given value.
[65] For completeness, I record that the liquidator’s challenge to the post liquidation payment was on the basis of money had and received. I do not need to consider the availability of that cause of action in respect of a payment made after liquidation which but for that fact would have been subject to s 292 of the Act, as I have determined that the March transaction represented Ganellen meeting an indebtedness it had incurred directly with RSM.
Disposition
[66] For the above reasons, the liquidator’s claim is dismissed. Counsel agreed that costs should follow the event on a 2B basis.
3 Meltzer v Allied Concrete Ltd [2013] NZHC 977. Citations omitted.
Costs
[67] Accordingly, there is an award of costs in favour of RSM against the applicant on a 2B basis together with disbursements as fixed by the Registrar, including counsel’s reasonable travelling costs.
Associate Judge Lester
Solicitors:
Holland Beckett Law, Tauranga Sainsbury Logan & Williams, Napier
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